International Finance Theory and Policy
by Steven M. Suranovic
Finance 10
Finance 10 
Finance Questions 10 231. Consider the following data collected on February 9, 2004. The interest rate given is for a oneyear money market deposit. The spot exchange rate is the rate for February 9. The expected exchange rate is the oneyear forward rate.
A) Use both RoR formulae (one from section 104 the other from section 105: Step 5) to calculate the expected rate of return on the Canadian money market deposit and show that both formulae generate the same answer. (Express each answer as a percentage.) B) What part of the rate of return arises only due to the interest earned on the deposit? (Express the answer as a percentage.) C) What part of the rate of return arises from the percentage change in the value of the principal due to the change in the exchange rate? (Express the answer as a percentage.) D) What component of the rate of return arises from the percentage change in the value of the interest payments due to the change in the exchange rate? (Again, express the answer as a percentage.)
International Finance Theory and Policy  Chapter 10: Last Updated on 1/6/08
